Options - A Nice Thing To Have

In finance, binary options are a type of option where the payoff is either some fixed amount of some asset or nothing at all

. The two main types of binary options are the cash-or-nothing binary option and the asset-or-nothing binary option. The cash-or-nothing binary option pays some fixed amount of cash if the option expires in-the-money while the asset-or-nothing pays the value of the underlying security. Thus, the options are binary in nature because there are only two possible outcomes. They are also called all-or-nothing options, digital options (more common in forex/interest rate markets), and Fixed Return Options (FROs). For example, a purchase is made of a binary cash-or-nothing call option on XYZ Corp's stock struck at $100 with a binary payoff of $1000. Then, if at the future maturity date, the stock is trading at or above $100, $1000 is received. If its stock is trading below $100, nothing is received.

Option Trading, or options trading, is the trading of stock options over an exchange. As option trading is most commonly conducted through online option trading brokers, it is also commonly known as Online Options Trading. There are many people who confuse options trading with futures trading. Futures and options are two distinctly different derivative instruments with their own characteristics.

The first thing you need in order to start trading binary options is a broker that works with this type of instruments. Unlike traditional options, binary options are not carried by traditional brokers such as Etrade or any of the ones you are used to hearing from. Trading binary options are usually carried by specialized brokers that only offer these instruments and depending on the broker you will get more assets to trade options on and more expiration terms.

Once you have a trading platform where you can place you trades, you must then choose an underlying asset on which you will be trading your options. Indeed, there are many assets you can trade binary options on, and the list of the ones available is growing everyday. For example, you will find that you can trade binary options on currency, stocks, commodities and even indices, but which one will you be buying options on will depend on the level of familiarity you have with each market.

Binary options trading are usually done by the hour, meaning that they expire hourly, however, there are longer term expiration such as daily and even monthly. Choosing the proper time of expiration for your trade will depend on your strategy and how you approach the analysis of the market. If you are comfortable with the analysis of 5 or 15 minutes charts, then you can trade on short term options. On the other hand, if you feel more comfortable analyzing longer term charts then you should go for binary options trading with expiry time by the end of the day. Once you have your analysis in place and a good idea of where the market is headed within the time of expiration you chose, then it is time to open position with a PUT (if you think it is going down) or a CALL (if your think it is going up).

by: Andre Maurois

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